Thursday, July 06, 2006

No way out of the bad softwood deal

VICTORIA - The bad softwood deal is turning into a giant mess for the forest industry, Stephen Harper' and the Campbell government..
There will be lots of political fallout.
But the practical consequences are damaging for hundreds of communities. Canadian forest companies were looking for two things from a softwood deal - certainty, so they could make plans for the future, and a chance to compete in the U.S. market.
The agreement gives them neither. The deal can be killed by either side within three years; no company can confidently invest in Canadian forestry on that basis. And the barriers to the U.S. market included in the agreement are potentially greater than the duties now being imposed.
And for this, the industry is expected to drop all its legal action against the U.S. and hand over $1 billion in duties collected over the last four years. (Illegally, according to the B.C. and federal governments.)
If the deal goes through - and that's almost certain - companies will get back $4 billion in duties collected since 2002. Good news for the shareholders, but perhaps not for B.C. communities. Companies will be making decisions on how to use that money. Investment in B.C. will be less likely because of this softwood deal.
That's particularly bad news for the coastal industry, which needs investment in more efficient mills. The risk is that companies will take their share of the $4 billion, look at the prospects here and walk away.
How did this happen? It looks like the U.S. side saw that Canada was desperate to do a deal and took advantage. It doesn't matter why they judged Canada desperate - whether Ottawa was seen as keen to set up a good Harper-Bush meeting, anxious for a success for controversial Trade Minister David Emerson or hoping that settling softwood would win U.S. co-operation on some other file.
The U.S. guessed right and Canada is trapped in a bad deal.
Theoretically, forest companies can sink the agreement by refusing to give up their lawsuits against the U.S. over the current duties. But then what? The Harper government will be unlikely to champion the case for a better deal, and in any case it now lacks bargaining power now. Without strong government support for continued challenges under NAFTA and through the World Trade Organization industry has dew options.
Meanwhile the B.C. government is left looking much like an ineffectual junior partner. Premier Gordon Campbell says now says B.C. won't support the agreement unless the terms are changed.
He's a little late. Forest Minister Rich Coleman has been praising the agreement. B.C. played a big role in reaching the agreement and it had "huge" support from the industry, Coleman told the legislature in May. He dismissed questions from NDP forest critic Bob Simpson that echo the concerns being raised by industry today.
Somehow, the B.C. government lost touch with industry and got in over its head. Harper's claim that he had B.C.'s support seems reasonable based on Coleman's raves.
(Emerson says the deal hasn't changed significantly since a draft was negotiated in April.)
Federally, Harper's softwood stumbles have handed the opposition a great election issue. The Liberals, Bloc Quebecois and NDP all oppose the deal. Harper has said the vote on it, expected this fall, will be a confidence motion. If the Conservatives lose, there would be an election.
It's a big opportunity for the opposition. A softwood deal that caves in to the Americans, signed, over the objections of provinces and industry, in a rush before a birthday visit to President George Bush.
But don't expect the government to fall. The Liberals' leadership vote will be Dec. 3. They'll want to wait until that's settled.
Mostly, this is embarrassing. The U.S. managed to negotiate a deal that's won wide acceptance.
Ottawa - encouraged by the B.C. government - has signed a bad deal, one already been rejected by provinces and industry.
Footnote: Liberal leadership candidate Michael Ignatieff will likely be an incidental casualty of the softwood deal. Ignatieff's return to Canada after decades in the U.S. and some of his written comments have already raised questions about whether he's too pro-American for some Liberal delegates. If the Liberals party plan a campaign attacking Harper's ties to Bush, Ignatieff is not their man.

Monday, July 03, 2006

Bad softwood deal grim news for B.C.

VICTORIA - The softwood deal that David Emerson and Stephen Harper are pushing is so bad it’s hard to imagine what they’re thinking.
The U.S. lumber industry wins; Canada loses. Canadian companies hand over $1 billion in to the U.S., with about half of it going directly to their American competitors - a reward for imposing duties that Canada and B.C. have claimed were illegal.
In return, Canada gets pretty much nothing.
B.C. and Canada had two objectives when the latest stage of this battle started four years ago. Free access to the U.S. market for our lumber, so companies could compete. And an agreement that would last long enough to let companies and communities plan and invest with some confidence.
The proposed deal delivers neither. It does let Harper and George Bush talk about solving the trade dispute when they meet in Washington this week. Perhaps Harper hopes it will also increase the chances of co-operation on other issues.
But for Canada’s forest industry and for communities that depend on the sector, it’s bad news.
There is no free access. The agreement attempts to keep Canada’s share of the U.S. market below 34 per cent - about where it was under the former softwood deal that Canada considered unacceptable.
The mechanism is different. The new deal uses timber prices to trigger trade barriers. When American prices are greater than $355US per thousand board feet, Canadian companies would have free access to U.S. markets. Once they fall below that, the border would start to close.
Canadian companies would have a choice under the deal. Companies in a region can agree to accept a quota on exports and pay smaller export charges. Or they can agree to pay higher export charges and ship without a quota.
The export charges would be collected by Ottawa and probably shared with the provincial governments.
The idea from the U.S. perspective is simple. Canadian companies will have to build the cost of the export duties into the price of the wood they send across the border. That will let U.S. producers keep their prices higher. The U.S. National Association of Homebuilders is forecasting that lumber prices could be about $315 by the time the deal is in effect. That would mean export duties of 15 per cent - more than the companies are paying now.
That’s not even the worst part of the proposed agreement.
The whole point of this exercise was certainty. B.C.’s forest industry depends on the U.S. market. Companies’ willingness to invest here is reduced when they must factor in the chance that the door to the major market could be closed with little warning.
Instead of certainty, the deal offers a stopgap. It’s officially for seven years, but either side can opt and out and kill the deal in as little as three years. The industry - and governments - have no certainty.
No worries, says Emerson. It’s a U.S.-Canada deal and neither government is likely to pull out.
He can’t be serious. If the clause wasn’t likely to be used, the U.S. side wouldn’t be insisting that it be included. The American timber companies are a powerful political lobby. The agreement will be threatened the first moment they have the chance.
And why not? Their tactics over the last four years have worked extremely well, keeping Canadian lumber out, prices high and producing a $500-million windfall.
The deal is already under attack. The B.C. government and the province’s industry have sent a joint letter saying the agreement is unacceptable. They want, among other things, a slightly longer term. Companies can kill the agreement by refusing to drop their lawsuits over the current duties.
But Emerson signed an agreement on behalf of Canada. The industry has to worry about his future attitude. And in any case, the U.S. negotiators can now just keep insisting Canada honour the commitment already made.
Ottawa has fumbled, badly.
Footnote: The bad deal is especially surprising because Canada seemed to be making steady progress in its legal efforts to fight the duties under NAFTA and through the World Trade Organization. The dispute was always most likely to be settled through negotiation, but legal victories increase Canada’s bargaining position steadily had forced the U.S. to lower duties.